Kenya’s private sector has stumbled into the new year, recording its slowest growth in four months as cash-strapped consumers tighten their belts.

The harsh economic reality of "Njaanuary" has hit home, with a new report revealing a significant deceleration in business activity. Driven by a struggling retail sector and a sharp drop in construction demand, the private sector has lost the momentum it gathered towards the end of 2025. The data points to a challenging first quarter for businesses as they navigate a landscape defined by reduced circulation of money and cautious spending habits.

Retail and Construction Take the Hit

The slump is primarily attributed to a sharp contraction in customer demand. After the festive excesses of December, Kenyan households have retreated into financial hibernation, prioritising school fees and basic survival over consumption. This cyclical downturn has been captured vividly in the latest Purchasing Managers’ Index (PMI) data, which serves as a barometer for the health of the private economy. When the PMI drops, it signals that purchasing managers are ordering less stock, hiring fewer people, and seeing lower output.

The construction industry, often a leading indicator of economic confidence, has seen a notable dip. Projects have stalled or slowed down as developers hold onto cash. Similarly, the retail sector is grappling with low footfall. Supermarkets and small traders alike are reporting reduced daily turnovers, forcing them to discount goods in a bid to stimulate sales. The ripple effect is being felt across the supply chain, from manufacturers to logistics providers.

• Inflationary Pressures: While the rate of inflation has stabilised in some areas, the cost of living remains high relative to income. This disparity continues to erode the purchasing power of the average Kenyan.
• Employment Stagnation: With demand falling, businesses have put a freeze on new hiring. The report indicates that many firms are opting to maintain their current workforce rather than expand, further suppressing income distribution in the economy.

Hope on the Horizon?

Despite the gloomy start, analysts remain cautiously optimistic that the situation will correct itself as the quarter progresses. The release of school fees and the eventual stabilisation of household budgets usually lead to a rebound in March. However, for this to happen, the macroeconomic environment needs to remain stable, particularly regarding fuel prices and exchange rates.

For now, business owners are adopting a defensive posture, focusing on efficiency and cost-cutting to survive the lean season. The resilience of Kenya's private sector is once again under test, and the coming months will determine whether this slowdown is a temporary blip or a sign of deeper structural fatigue.